The value of an annuity that grows at CALPERS (ridiculous) assumed rate is much higher than CALPERS led the public to believe. In this time of near zero interest rates, nobody can make 7+% guaranteed, and any product (CALPERS pension) that offers such a return is worth a lot. Therefore, it is more expensive to the city and taxpayers, since we're backfilling the difference between market return and 7.25%. Since we're giving the bureaucrats a $3M raise, there should be a simple salary rollback until the $3M is recouped.

If the unions balk, impose the cut. Those who wish to leave can simply resign and go find higher paying employment in the private sector. The private sector is always willing to pay market rate for high achieving producers...

There's one group of employees that are at the heart of the budget problem..... the police.

They get high salaries justified by risk on the job. I'm OK with that. But in retirement that RISK DISAPPEARS. Yet they get retirement at a younger age at higher retirement factors than all other city employees on a higher base salary.

If the police want to retain the retirement age of 50 (or 55) then the math and "equity" that makes sense is a "factor" of 1.75. State statistics show the police retirees live just as long as all other government employees (avg of 85 yrs). That means we citizens get to pay their retirement for an extra 10 or 15 years. So if you get the higher pay while working, shouldn't they be expected to do what every other citizen does, start their own IRA and contribute a portion of their high salary to their own future retirement.

The alternative is for the city to negotiate a cap of 15% on the city's contribution to CALPers fees. If they want the benefits of a retirement program that is financially irresponsible and unsustainable then let them make up the rest of the contribution.

Posted by Chicken Little
a resident of another community
on Apr 13, 2013 at 1:49 pm

BY PAULA READY

The term “unfunded liability” usually leads to one of two outcomes: either one’s eyes glazing over or senseless nail-biting. The explanation that follows is for those in the latter category, who may have been falsely alarmed by politicians using public employee pension systems as the scapegoat for their bad budgeting decisions.

Let’s start at the beginning: An unfunded liability amounts to nothing more than the retirement costs a pension plan has promised to its members less the assets it has on hand.

Think of it like having a home mortgage. Homeowners promise to pay a certain dollar amount over the course of 30 years, but most of us don’t have anywhere near the value of our homes sitting in the bank.

So, if we owe $400,000 on our home, but we only have $100,000 in the bank, then one could say we have a $300,000 — or 75 percent — unfunded liability. Sounds scary. But it is entirely normal.

An unfunded liability is also just a snapshot in time that can change dramatically over the course of a few months or a few years. For example, if we dip into our savings one month, then that gap between our loan obligation and our assets increases.

One could play with the numbers or take a snapshot on any given day to make the numbers look better or worse. That’s why it’s much more meaningful to take a long-term view of an investment such as a mortgage.

When California’s public employee pension systems — CalPERS and CalSTRS — are viewed in the long term, it’s clear that they are sound, healthy investment systems.

The systems’ investment portfolios are bringing in healthy returns. Over the past two decades, CalPERS has averaged returns of 7.7 percent. Over 30 years, they’re higher, at 9 percent.

That’s despite the recent economic recession. Imagine if your IRA or bank savings account yielded that kind of interest. Politicians shouldn’t be scapegoating a retirement system that brings in those kinds of positive returns — they should be studying the system to see what it’s doing right.

Yes, the performance of local governments’ pension systems varies, but even cities that have fallen into bankruptcy can’t blame their employees’ retirement costs for their financial problems. In Stockton, the severe budget deficit was caused by lavish spending on a ballpark and an entertainment center. In San Bernardino, pension costs amounted to a small portion of the city’s budget shortfall last year.

Voters get it. Nationally, 87 percent of us say we don’t trust politicians when it comes to retirement security, according to research done by the National Institute on Retirement Security.

Not only that, but Americans believe public employees deserve their pensions. The research showed that 86 percent of people believe police officers and firefighters deserve pensions because of the danger inherent in their jobs, and 72 percent believe teachers deserve pensions because of how low their salaries are.

Fewer than one in 10 thinks government employees’ pensions are too high.

In California, voters are supportive of the pension reforms Gov. Jerry Brown signed into law last year.

On top of that, hundreds of labor unions throughout the state have made concessions, recognizing that tough times mean everyone needs to cut back.

The important thing is that those unions cut back their own benefits at the bargaining table, not on the pages of the newspaper or from behind a lectern at a press conference.

It’s easy to forget the real people we’re talking about — the school teachers, law enforcement officers, bus drivers and trash collectors who work on our behalf and retire on modest pensions. It’s too easy to talk in abstract numbers and blame difficult-to-understand investment systems for our fiscal problems.

Those of us who know better need to hold our elected officials accountable. Let’s force them to get their finances in order by not allowing them to blame the “unfunded liability” boogeyman.

Posted by Henry Fox
a resident of Menlo Park: The Willows
on Apr 13, 2013 at 3:14 pm

Chicken Little.

The unfunded liability is NOT at all like a mortgage on your house.

The mortage on your house is fixed and or predictable. You pay it off at a prearranged rate over time.
Every year the principle on which the payment is made decreases, even though the mortgage rate stays the same.

With CalPERS, the amount owed on the debt keeps increasing. That is because salaries are going up, people are living longer, and state has enacted absurd disability laws for safety employees. At last count, 37% of our retired safety officers collect disability benefits--for problems that probably had little to do with the job.

Is a property owner allowed to multiply the properties owned and tuck it under the same mortage? Of course not, but in 2007 the Menlo Park City Council awarded a huge retroactive pension increase to city employees thus creating pension obligations out of thin air.

Unlike a mortage, the amount required to pay off the pension debts fluctuate in an unpredictable manor. For example, San Mateo County (to which we all pay taxes) recently kicked in an extra $5million from the general fund to keep its pension fund afloat. When a pension fund is seriously underfunded, no level of return can restore it. Remember that 7.5% of $10 is a lot different than 7.5% of $100.

And finally and significantly, the owner of the debt is not like the person who benefits from owning house, but you and I, the taxpayers.

The analogy between an unfunded pension liability and a home mortgage is very limited—and lame. The analogy to a ponzi scheme would be more accurate.